British American Tobacco (BAT) payments to farmers fell by Sh60 million in 2015 on the back of fewer contracted planters and lower leaf tonnage.
BAT says in its 2015 annual report that it paid out Sh1.24 billion, compared to Sh1.3 billion in 2014 even though the quality of the tobacco delivered was higher last year.
The decline in earnings came as the number of contracted farmers in Kenya fell by about 360.
“In the 2015 crop season, we contracted 5,537 farmers to grow tobacco on our behalf…the company grew and purchased 7,452 tonnes of tobacco (previous 8,100), with gross payments at Sh1.24 billion.
The leaf quality index rose by 10 per cent driven by better crop planning and farmer performance, aided by our farmer cell extension programme,” said BAT in its annual report.
The firm had not responded to a Business Daily request for additional information by the time of going to press.
In spite of the drop in overall payment, the earnings per farmer based on a straight average rose from Sh220,340 in 2014 to Sh223,950 in 2015, given that growers numbers fell from 5,900 to 5,537.
BAT shareholders payment has also risen consistently over the years. They enjoyed a higher dividend of Sh49.50 per share last year from Sh42.50 a year earlier as the firm maintained its policy of paying out its entire net earnings to shareholders.
Price for top quality leaf
BAT made a net profit of Sh4.9 billion last year, up 17 per cent from Sh4.2 billion in 2014.
Although earnings have generally gone up since 2012, the tobacco sector has not been all rosy for farmers. They have often complained over what they termed low prices for a kilo of tobacco, saying that although the price for top quality leaf is above Sh200 per kilo most of their produce is being graded at lower standards thus fetching low prices.
They are also reeling from the exit of one of the largest leaf buyers in the country, Alliance One Tobacco.
The subsidiary of US tobacco firm Alliance One International left the Kenyan market in July last year saying it would instead concentrate its buying in Uganda and Zimbabwe where it is getting cheaper and higher quality leaf.
The turbulence in the sector has pushed farmers away from the crop, with the government making limited if any intervention to prop it up.
“Last year the farmer numbers progressively declined. They are leaving because of being asked to deliver tobacco longer distances by the buyers, and delays in payments by the smaller buying companies,” said a former tobacco farmers’ association officer who declined to be named.
Credit: Business Daily